Debenhams adds to UK retail gloom with new profit warning

LONDON (Reuters) - Department store group Debenhams (DEB.L) added to the grim start to 2018 for Britain’s retail sector, lowering its full-year outlook for the second time in four months and cutting its dividend after a 52 percent slump in first half profit.

Shares in Debenhams fell as much as 13 percent on Thursday, taking its year-on-year plunge to 61 percent.

The 240-year old Debenhams, which delivered the sector’s first profit warning of the year in January, also said Matt Smith, its chief financial officer, was quitting to take up the same role at rival Selfridges.

Debenhams is not alone in finding the going tough. Official UK data showed the biggest quarterly fall in retail sales in a year.

Debenhams’ problems have, however, also been self-inflicted.

“We didn’t help ourselves at Christmas because our approach wasn’t good enough,” Chief Executive Sergio Bucher told reporters. Debenhams said in January it had been forced to cut prices to drive sales of Christmas gifts.

Already this year Toys R Us UK, electricals group Maplin and drinks wholesaler Conviviality have plunged into administration, while fashion retailer New Look and floor coverings firm Carpetright are closing stores.

Rival department store group House of Fraser is seeking rent reductions while market leader John Lewis has cautioned on the outlook.

PACE OF CHANGE

Bucher, a former Amazon and Inditex executive who joined Debenhams in 2016, is one year into a turnaround plan focussed on closing some stores, downsizing or revamping others, cutting promotions and improving online service, while seeking cost savings.

Progress has been hampered by changing shopping habits, a squeeze on UK consumers’ budgets, a shift in spending away from fashion towards holidays and entertainment, as well as intense online competition and bad weather, including snow in March that temporarily shut almost 100 stores.

“The market has remained very volatile and competitive with consumer confidence and the clothing market continuing to fall,” said Bucher.

“The retail market is changing but this is happening faster than we or anybody expected and therefore we need to accelerate our pace of change,” he said.

Outgoing CFO Smith denied his exit showed a lack of confidence in Bucher’s plan. “I was part of developing the plan, it’s a good plan,” he said.

Bucher said progress had been made, pointing to strengthened management, sales growth from digital channels ahead of the market, encouraging returns from new store formats, and partnerships with other retailers.

“It’s not easy from the outside to appreciate the amount and magnitude of change that is happening inside Debenhams,” he said.

Debenhams made an underlying pretax profit of 42.2 million pounds ($59.9 million) in the 26 weeks to March 3, below analysts’ average forecast of 44 million pounds, on revenue down 1.6 percent to 1.65 billion pounds. The interim dividend was cut by 51 percent to 0.5 pence to fund the recovery strategy.

The group is now forecasting a 2017-18 pretax profit at the lower end of analysts’ forecast range of 50-61 million pounds versus previous guidance of 55-65 million pounds. It made 95.2 million pounds in 2016-17.

Debenhams shares recovered to be down 1.4 percent at 1016 GMT valuing the business at 285 million pounds - some 20 times less than ASOS (ASOS.L), the 18-year-old online fashion retailer.

“Our biggest concern remains relevance, Debenhams has lost the customer as the product offer has become tired,” said analysts at Peel Hunt, reiterating their “sell” recommendation.

“The CFO is leaving for Selfridges, investors should follow,” they said.